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Kane County Water Company Taken Over By Feds

Read between the lines of this press release from the U.S. Attorney’s Office and let me know if you think indictments are forthcoming for those involved with this Kane County special tax district:

SMALL WEST SUBURBAN WATER DISTRICT PLACED IN HANDS OF

COURT-APPOINTED RECEIVER AFTER U.S. SUES OVER LOAN DEFAULT

CHICAGO — A federal judge today appointed a receiver to take charge of operating a small west suburban water district after the United States filed a civil lawsuit alleging that the district is missing thousands of dollars in cash receipts and is “hopelessly in default” of a federal loan.

The Moecherville Water District's water tower from Google Earth.

The Moecherville Water District, N.F.P., which supplies water to approximately 370 customers just east of Aurora in Kane County, was placed in receivership after the government lawsuit was filed under seal yesterday. The suit was unsealed today after the receivership order was served on the district, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois.

The U.S. Department of Agriculture loaned the not-for-profit district $2.778 million in July 2005 for the construction of a water utility system through a USDA farm lending program designed to help farmers and rural residents finance soil conservation, development and water control projects.

The district has not made a single payment on the loan since the first monthly payment was due in August 2007, and the district now owes the USDA more than $3.2 million in principal and interest, according to the foreclosure complaint filed in U.S. District Court.

U.S. District Judge William Hibbler appointed the Illinois Rural Water Association as receiver to operate the water supply system until its property can be sold through foreclosure. In a companion court filing asking for the receiver to be appointed, the government alleged that it has reason to believe that the water district has misappropriated cash payments it received from customers. Based on a review of financial records, on several occasions, the district has deposited less funds into its operating account than it received from its customers, the document states.

According to the court documents, the United States is entitled to relief under the terms of two promissory notes, a real estate mortgage and a loan resolution security agreement.

In order to secure repayment of the loan, the Moecherville district granted the USDA a mortgage covering the property that contains the income-producing water utility system.

The mortgaged property consists of four parcels, which together contain well houses, an office and water tower, and a garage and storage facility, located at

527 S. Kendall,

539 S. Farnsworth,

1228 Ziegler, and

1206 Ziegler,

all with Aurora mailing addresses.

After failing to make timely payments, in September 2009, the Moecherville district filed a bankruptcy petition, which was later voluntarily dismissed.

“There is no reason to believe that Moecherville will make any payments on the debt in the future,” the court documents state.

As of Aug. 11, 2010, the debt had grown to $3,241,707.71, accruing interest at the rate of $313.95 per day.

While the mortgaged property and equipment have some value, according to the documents, the real value in the water system is based on the revenue stream from its operations, which can only be realized by continuing to supply water.

Proper management of the cash receipts is necessary to maximize the system’s value to prospective purchasers, the government claimed in its request for receivership.

According to the district’s 2009 financial reports, revenue was obtained from customers in the form of cash, checks and money orders, and all such receipts should have been deposited into Moecherville’s operating account.

However, a review of several reporting periods showed that the district “has failed to consistently deposit the cash receipts that it receives,” which accumulate to thousands of dollars.

The government is being represented by Assistant U.S. Attorneys Kurt Lindland and Joseph A. Stewart.

In civil cases, the government has the burden of proving the allegations by a preponderance of the evidence.